Morgan Stanley Suspends Hiring – Analyst Blog

Morgan Stanley (MS) has frozen its hiring processes in its investment banking unit for reminder of fiscal 2010, according to a report by Fox Business Network. Hence, the company’s plan to expand its institutional sales and trading businesses will be on hold for the time being. The company, however, has no plans to lay off employees.

 

The hiring recess, however, excludes Morgan Stanley Smith Barney, Morgan Stanley’s retail brokerage joint venture (JV) with Citigroup Inc. (C), which was formed in May 2009. The company will continue adding new employees to the JV in the U.S. and abroad all through the year.

 

In order to grow its institutional sales and trading businesses and to better compete with its closest peer Goldman Sachs Group Inc. (GS), Morgan Stanley had started recruiting since the end of the financial crisis in 2009. The company hired nearly 400 people since June 2009 in its sales and trading unit. As of June 30, 2010, the company’s headcount stood at 62,926, up 2.8% from the prior year period.

 

Though Morgan Stanley is trying to keep compensation expenses under control by freezing new recruitment, it has not adopted the stringent measures of some of its peers. Earlier last week, Bank of America Corporation (BAC) started firing about 400 employees from its global banking and marketing division. Similarly, Barclays plc (BCS), which added 3,600 people in the last 12 month ended June 30 is expected to lay off nearly 300 employees. In August 2010, Credit Suisse Group (CS), which had hired 1,300 new staff in the same period, announced that it will remove 75 posts in Europe.

 

Morgan Stanley’s decision to halt recruiting is mainly the result of a relatively sluggish economy that has led to low margins. Besides, resources have been strained to support the new additions to the payroll. It also becomes more costly to hire at the end of the year, as the new employees would also be eligible for year-end bonuses, thereby further stretching resources. 

 

Morgan Stanley is facing major headwinds to stay competitive and regain its industry leading position as its growth has been negatively impacted by the financial crisis. Besides, there are concerns related to the impact of the Dodd-Frank Act on the company’s profitability.

 

However, we believe that Morgan Stanley has the potential to realize the full benefits of its strategic and cost-cutting initiatives. Inorganic growth initiatives with a healthy balance sheet continue to be significant growth drivers.

 

Morgan Stanley currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Also, considering the fundamentals, we are maintaining a long-term Neutral recommendation on the stock.